Borrowing to invest in fixed income arbitrage
If you can take out a personal loan of say $25k at a 3% annual rate and invest in a fixed income fund with a return of say 6%, what's the reason not to?
Let's assume we're talking about developed markets and corporate bonds with a solid rating. The risk of widespread default is immaterial.
Talk me out of this arbitrage opportunity.
floating rate loan? interest rate changes and inflation
It’s not arbitrage in the traditional sense, but I get your point. It depends how you structure the debt. If you are on a LoC you are open to variable interest rate risk. If you get a mortgage and fix it, you are open to an issue where you might need to make a bullet payment at the end of your term and the underlying asset has crashed. It’s not super risky and personally I think it makes sense to do to some degree
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